EMERGENCY MANAGER’S FINDINGS

Detroit’s financial woes worse than anticipated

$15B debt is higher, less set aside for retirees

5/13/2013

REUTERS

Six weeks into his work as Detroit’s emergency manager, former bankruptcy lawyer Kevyn Orr has found the city’s finances in worse shape than expected, with long-term debt at $15 billion, $2 billion worse than figures disclosed before he took the job.

DETROIT — Six weeks into his work as Detroit’s emergency manager, former bankruptcy lawyer Kevyn Orr has found the city’s finances in worse shape than expected, with long-term debt at $15 billion, $2 billion worse than figures disclosed before he took the job.

The city has set aside far less than expected for retiree health-care benefits too.

A report from Michigan State University in March stated that Detroit has $4.9 billion of unfunded benefit liabilities. But Mr. Orr’s review has found the shortfall actually is $5.7 billion, 16 percent higher than expected, according to spokesman Bill Nowling.

Mr. Orr will address the city’s finances today when he delivers a report to the state.

He is expected to report on Detroit’s projected budget deficit and pension underfunding, too, but Mr. Nowling would not discuss details of those items.

Mr. Orr, who previously worked on the restructuring of U.S. automaker Chrysler LLC, has sweeping powers as emergency manager to deal with a city where the population of 700,000 is a fraction of its 1950s peak of 1.8 million people.

Detroit has difficulty providing adequate policing and basic services like streetlights and working fire equipment.

After maintaining a low profile since being appointed, Mr. Orr will give his first public indication of how bad the problem is, and how he hopes to fix it.

The findings will come from a detailed financial review he has conducted since he stepped in as emergency manager.

“If we keep going down this path, there are only dragons,” Mr. Nowling said. “There are no more corners to cut or one-time fixes to make. We have to make some really, really major restructuring decisions, and it has to happen quickly.”

The stakes are high for Mr. Orr and his credibility.

After arriving with much fanfare and amid some controversy over the state takeover of Michigan’s biggest city, Mr. Orr has worked mostly behind the scenes, developed a rocky relationship with Mayor Dave Bing and the city council, and moved more cautiously on cost-cutting and infrastructure improvements than many had expected.

Mr. Orr is required to deliver a plan for tackling the city’s annual $100 million deficit today in order to meet a deadline set by the Michigan state law that allowed Gov. Rick Snyder to put him place in late March.

The scale of problems is so great that Mr. Orr’s office has warned that there are limits to what he can offer this early.

“I would be enthused but surprised if we see anything in terms of details” from Mr. Orr, said Patrick O’Keefe, chief executive and founder of turnaround specialists O’Keefe and Associates Consulting LLC, which is based in the Detroit suburb of Bloomfield Hills.

Mr. Orr’s deliberate approach contrasts with the tone he set at the start.

In an interview just days after his appointment, he raised the prospect of a bankruptcy filing.

As an unelected official, tasked to guide the turnaround of a heavily Democratic city by a Republican governor, Mr. Orr faces a delicate task.

So far, restructuring and bankruptcy specialists say Mr. Orr has struck the right tone by resisting temptation to use broad powers that would allow him to remove the elected city council and Mayor Bing from the city payroll.

By all accounts, though, Mr. Orr has barely begun on the work he must complete if he is to succeed during an expected term of 18 months on the job.

He will have to negotiate concessions with the city’s 48 unions and decide how extensively to cut services or city payroll. He also must negotiate with bondholders.

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